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FCC Seeks Comment on Reforming the Multibillion Dollar E-rate Program

Washington, D.C.

In 2012, the government authorized the transfer of $2.25 billion from telecommunications consumers to schools and libraries to fund “E-rate,” the federal government’s largest education technology program. This year, the FCC proposed fundamental changes to the E-Rate program that could either help usher in a more efficient, more responsive program for students and educators, or swell funding for what some regard as an already inefficient government subsidy program.

Since adoption of the Telecommunications Act of 1996 nearly twenty years ago, the E-rate program has subsidized access to advanced telecommunications services for schools and libraries. The Federal Communications Commission (FCC) oversees the distribution of these subsidies, the funding for which comes from fees paid by wireless and wireline carriers, as well as certain other providers.

Although the FCC has set an annual funding cap for the E-rate program, demand for E-rate support continues to increase, and for the 2013-2014 funding year, schools and libraries sought more than $4.9 billion dollars in E-rate support – far in excess of the annual funding cap for the program. In a recently released Notice, the FCC has not only sought comment on whether to change the allocation of Universal Service Fund (USF) fees to increase funding for E-rate services while potentially reducing funding for other USF-funded programs, but also whether and how to repurpose much of that funding for high-capacity broadband connections. The FCC release of the E-rate Notice is partially a response to the challenge the White House posed in June 2013 when it launched its ConnectEd initiative with the goal of providing high-speed broadband and wireless connectivity to 99 percent of America’s students within the next 5 years.

With billions of dollars’ worth of U.S. education technology spending at stake, the outcome of the debate promises to change the way that educators and libraries teach children and communicate with families. In its Notice, the FCC signals a strong preference for providing support for fiber-based broadband connections of the type that Comcast’s hybrid-fiber coaxial systems offer in its territories or that Google Fiber has begun offering in Kansas City, Kansas. The FCC’s strong support for fiber-based technologies could prove damaging to providers of non-fiber technologies, including DSL or wireless connections. In addition, changes to the current E-rate spending cap could divert money from other USF programs, and remove or sharply reduce subsidies for the many wireline and wireless carriers that currently receive hundreds of millions of dollars of USF funding. Providers of legacy technologies would see additional funding cuts if the FCC adopts its proposal to phase out E-rate support for some or all voice services and instead shifts the focus of the program exclusively to the provision of high-capacity broadband connectivity.

In the Notice, the FCC seeks comment on the best way to achieve three goals for modernizing the E-rate program. First, the FCC asks how to refine the purpose of the program to emphasize the provision of high-capacity broadband to schools and libraries. Current E-rate regulations provide support for outdated services, such as pagers and directory assistance, but prevent an applicant from using E-rate funds to build its own broadband network to connect multiple school buildings. The current rules also classify the use of E-rate funds for building out internal broadband connections to classrooms as a secondary funding priority. In the Notice the FCC also proposes to designate fiber connections as the most efficient technological architecture that schools and libraries should use as they build out connectivity, while asking if other broadband technologies could also satisfy the goals of the E-rate program.

Second, the FCC seeks to maximize the cost-effectiveness of E-rate funds. The FCC suggests that it is considering adopting policies to encourage greater consortium and other bulk buying opportunities. The Notice also seeks comment on increasing the transparency of how E-rate funds are allocated and spent by requiring the public disclosure of bids to provide E-rate service, as well as the actual purchase prices for services.

Third and finally, the FCC proposes to streamline the administration of the E-rate program by mandating electronic filing of all forms. The Notice also seeks comment on proposals to allow applicants to better monitor the progress of disbursement and to allow the E-rate administrator to make direct payments to schools and libraries instead of limiting disbursements to service providers only.

Comments on the E-rate Notice are due September 16, 2013; reply comments are due October 16, 2013.